Editor’s Note: An earlier version of this article was published in the Spring 2013 issue of the Management Information Exchange (MIE) Journal; it has since been revised by the authors with updated information and is published here with permission from the MIE Journal. This article provides a summary of the key issues involved in obtaining cy pres funds today and helpful strategies for various types of entities within the legal aid/ATJ community, including legal aid organizations as well as IOLTA programs. The original appendix to this article, which can be found in the library of the MIE website provides more details, including copies of relevant cases, articles, and sample materials. We encourage you to read this article with your computer open to that website!
Cy pres awards, which in the class action context most often arise from undistributed residual funds in the case, have become an important source of funding for legal aid and access to justice over the past decade. And appropriately so, as the one common denominator in all class action cases is that they are fundamentally about access to justice, a principle that increasingly is recognized by state supreme courts and legislatures and a host of state and federal courts around the country.
In spite of a large and growing body of authority and precedent, there have been several cases and articles in recent years that have raised questions about these awards, amalgamating the issue of legal aid’s legitimacy as a cy pres recipient with other genuine concerns raised by the circumstances in individual cases. This calls for a coordinated, threefold response from the legal aid/ATJ community throughout the country: (1) educating the bench and bar about the well-established and well-reasoned authority for these awards to go towards legal aid and access to justice initiatives, always remaining consistent on the fundamental arguments; (2) for states where a rule or statute is not already in place, advocating for court rules or statutes that clarify that legal aid/ATJ organizations are an appropriate recipient for these awards; and (3) recognizing the legitimate concerns raised in some cases involving cy pres awards and planning for them in education/outreach efforts so as not to inadvertently get caught in the crossfire when those concerns are present.
We all have a stake in doing this well, and we will all be more successful in our individual efforts if we utilize coordinated and complementary strategies. And when the proper foundation is set, designating one or more legal aid or ATJ organizations as the recipient of residual funds in a class action gives the parties and the court an excellent solution to what otherwise can become a thorny issue in the settlement of a complex case.
A (Very Brief) Overview of Cy Pres Awards and How They Arise
Cy pres awards are funds that, for any number of reasons, are unclaimed or cannot be distributed to the class members or beneficiaries who were the intended recipients. Once it is known that the funds cannot be distributed as originally intended, the parties and the court have to determine how to dispense with those funds. These situations arise most often in class action settlements, and that is the focus of this article. Under the cy pres doctrine and more specific laws in a growing number of states, courts can distribute these residual funds to appropriate charitable causes. As noted in the next section, legal aid and access to justice initiatives are appropriate charitable causes in any class action case.
In considering strategies around this issue, it’s important to remember the context through which these awards normally arise. The parties are going to be focused on the underlying purpose of the class action and the larger settlement of the case. Generally speaking, the issue of what to do with any award of residual funds is considered by the parties settling a class action to be one of several minor collateral issues that must be addressed to close out the case. The residual fund issue may be addressed during the settlement negotiations, but in many cases it isn’t addressed in the agreement at all and doesn’t arise until the administration of the settlement has been completed, sometimes years after the rest of the case has concluded.
With that backdrop in mind, what is going to be most important to the parties in a residual fund context is to avoid anything complex or controversial that potentially could draw an objection and upset the larger settlement. And that creates a great opportunity for legal aid and ATJ programs that are properly prepared. With the broad base of authority noted in this article and the universal nature of the access to justice cause in this context, legal aid or ATJ programs can always be pitched as a great solution for the parties and the court.
Legal Aid and Access to Justice Initiatives Are Well-Established as Appropriate Recipients
Federal and state courts throughout the country have long recognized that awarding residual funds from class action settlements or judgments to organizations that improve access to justice for low-income and disadvantaged people is an appropriate use of the cy pres doctrine. While some courts have correctly questioned awards to charities with no connection to the class or the underlying case, with just a few notable exceptions courts regularly approve cy pres awards to legal aid and ATJ organizations. That is because the one common underlying premise for all class actions is to make access to justice a reality for people who otherwise would not realistically be able to obtain the protections of the justice system.
In addition to the large body of case law supporting the use of cy pres awards to advance access to justice, a growing number of states have adopted statutes or court rules at the state level codifying the principle that organizations which promote legal aid and access to justice are always an appropriate use for residual funds in class action cases.
States with Rules or Statutes as of Spring, 2017
* The ABA keeps a current list of states that have rules and statutes that includes more detailed information on the ABA SCLAID website in the Civil Legal Funding section.
These court rules and statutes underscore that legal aid and access to justice are distinct from other charitable causes that have drawn legitimate concerns because they are unconnected from the interests of the class members. Recognizing the value of these rules and statutes, the ABA House of Delegates at its 2016 Annual Meeting passed a resolution that “urges state, local, territorial and tribal jurisdictions to adopt court rules or legislation authorizing the award of class action residual funds to nonprofit organizations that improve access to justice for persons living in poverty.”
Based on this well-established authority, hundreds of cy pres and residual fund awards have been directed to legal aid and ATJ programs around the country in recent years. While the total amount of these awards varies on an annual basis, these awards now collectively on average provide more than $10 million in support for the cause each year.
A Few Clouds on the Horizon, Yet the Sun Should Still Shine Through
In spite of the well-established authority noted above, there have been a few cases and articles in recent years that have questioned the legitimacy of certain cy pres awards. In some cases, awards to legal aid organizations specifically have been included among those concerns based on particular circumstances present in those cases.
Connection of Legal Aid to the Underlying Issues
In reviewing these cases, we need to start with the recognition that there indeed have been cases where parties improperly attempted to direct cy pres awards to causes that had no connection to the class or the case or to access to justice through the courts. Examples have included general awards to charities or educational institutions with no particular relationship to the class action. The concerns in the cy pres context are not about whether these are worthy and effective charities and institutions; it is their relevance to the class action where there are residual funds to be awarded that raises questions.
In many of these cases, the organizations selected may have been appropriate, but the reasons for including the organization were not articulated, leaving the appeals court to guess, sometimes inaccurately, about the connection of the organization to the issues of the case.
There is one negative case from the Eighth Circuit that legal aid advocates should review, though we stress that it only applies to federal court cases in that Circuit and that there remains substantial federal and state authority to support awards to legal aid. In that case, Oetting v. Green Jacobson, the court reversed a cy pres award for a number of reasons, including that the legal aid organization to receive the award was deemed insufficiently connected to the underlying case.
Other Issues: Compensation of Class Members and Geographic Concerns
There are two overarching issues that have often led to problems with settlements involving cy pres awards, and legal aid sometimes has been caught in the crosshairs. First, courts have found that the parties did not do enough to try to distribute the settlement funds to the class members before awarding the class action residuals. Many state rules and statutes explicitly address this issue, as does the ABA’s 2016 resolution on cy pres awards, stating that “before class action residual funds are awarded to charitable, nonprofit or other organizations, all reasonable efforts should be made to fully compensate members of the class, or a determination should be made that such payments are not feasible.”
Another issue that has properly been raised is when cy pres awards in national class action cases are directed to local charities only and do not account for the wider geographic character of the class. For example, in a recent case from the Ninth Circuit Court of Appeals, the court overturned the award of residual funds to a local legal aid organization and two other charities, focusing primarily on its concern that the distribution did "not account for the broad geographic distribution of the class."
Some authors and commentators have inappropriately used those concerns in specific cases to more broadly challenge the legitimacy of legal aid as an appropriate cy pres recipient. However, as noted above, provided that reasonable efforts have been made to distribute funds to the class members and geographic concerns are properly respected, there is a large base of authority and precedent underscoring that legal aid is distinct from other charitable uses of these awards. Notably, this well-established authority is not acknowledged by the critics and commentators questioning legal aid more broadly, emphasizing the importance of good education and outreach to the bench and bar to ensure these fundamental points are understood and respected.
Three Things Every Program Should Do Now
In order to ensure that the sun does indeed shine through the potential clouds noted above, there are three things every legal aid program and its relevant stakeholders should do on a macro level as part of a coordinated education and outreach campaign:
1. Maximize the Impact of Rules and Statutes
The legislature or Supreme Court in 21 states has enacted a statute or rule stating that legal aid/ATJ is an appropriate recipient of cy pres funds. In those states, the legitimacy of legal aid as a cy pres recipient in state court cases is established and not subject to question. The presence of the rule or statute also serves as persuasive authority in federal court cases in those jurisdictions. As more states enact rules or statutes, the argument that legal aid and access to justice are distinct from other charitable uses of cy pres awards becomes stronger, even in jurisdictions that have not explicitly spoken on the issue.
For these reasons, for states that do not have a rule or a statute in place, the ATJ community should prioritize obtaining an explicit rule to govern the issue, even if that may have been rejected in the past. States of all sizes and political persuasions have enacted rules or statutes and the ABA has adopted a resolution, underscoring that these policies are the embodiment of the well-established authority that legal aid and access to justice are appropriate recipients of cy pres and residual fund awards in any class action case.
2. Lead With the Access to Justice Principle
Always lead with the access to justice principle. This is particularly critical in states without a rule or statute, and imperative for all states in federal court cases. If there is another nexus that fits in a particular case (e.g. in a consumer case noting the important work legal aid does to protect consumers), that can be an effective secondary argument to also include. But it is crucial to always lead with the access to justice principle, as that applies across the board in every class action for every legal aid program.
Again, the access to justice rationale is this: legal aid and ATJ organizations are always appropriate recipients of cy pres or residual fund awards in class actions because no matter what the underlying issue is in the case, every class action is always about access to justice for a group of litigants who on their own would not realistically be able to obtain the protections of the justice system. This fundamental principle is the basis for the growing number of states that have adopted rules or statutes and for hundreds of federal and state court cases throughout the country that have approved these awards to legal aid and ATJ organizations. While there may be other appropriate recipients of a cy pres award depending on the basis of a particular class action, a cy pres award can always be justified for legal aid or access to justice based on this fundamental principle.
3. Be Sure to Account for Geographic Issues
If a class is local or statewide and your legal aid or ATJ organization serves that geographic area, this won’t be an issue. However, in multi-state or national class actions, this is a critical issue to address, as the Ninth Circuit case noted above underscores.
Even in national cases, the class action is typically certified, administered, and resolved in one particular court. Access to justice in that particular jurisdiction therefore takes on added importance for that class, and on that basis courts typically approve up to half of an award to local legal aid or ATJ organizations. The other half of the award must still account for the broader geographic scope, and as we’ve seen, failure to account for it can be grounds for throwing out an entire award.
There are different ways to address the geographic scope issue. One way is to include other legal aid or ATJ organizations that have the appropriate regional or national scope (e.g., Equal Justice Works, the Sargent Shriver National Center on Poverty Law, and the National Consumer Law Center). In larger national cases involving multimillion dollar awards, three approaches that have successfully been used were to give a proportionate share to each state IOLTA organization; a proportionate share to all LSC-funded organizations; or a representative geographic distribution to regional legal aid and ATJ organizations.
Any of these approaches to issues of broader geographic scope can be acceptable; the key is to make sure the issue is addressed!
Key Education and Outreach Strategies
To ensure that cy pres awards remain a strong funding source for legal aid requires a strategic and coordinated education and outreach campaign in every jurisdiction. It may have been effective in the past to look at these issues more informally, but the recent cases involving challenging facts—along with the organized campaign by organizations that aim to limit class actions more broadly—have put a much greater spotlight on cy pres awards. Even in jurisdictions with a strong rule or statute or solid court precedents, it cannot be assumed that all of the relevant stakeholders (i.e., the courts, the bar, key members of the legal community who work on class action cases, and other legal aid and ATJ organizations) are fully aware of these issues or understand the critical importance of addressing the key “macro” points noted in the preceding section of this article.
1. The Value of a Coordinated Effort
Many states and metro areas have developed a centralized, coordinated effort to ensure that the core cy pres messages are communicated to the key stakeholders on an ongoing basis and that those stakeholders have an appropriate mix of access to justice options from which to choose. These coordinated campaigns are being run by IOLTA programs, bar foundations, and access to justice commissions. If there is not already a coordinated effort in your jurisdiction, one of those entities will be the best place to start that conversation, stressing the key points we have emphasized in this article. The ABA’s Resource Center for Access to Justice Initiatives and MIE are good places to turn to for advice and counsel in starting such an effort.
The Chicago Bar Foundation (CBF) has been serving this role in the Chicago area for more than 12 years. As part of that effort, the CBF periodically does outreach to the class action bar, the state and federal courts, and other stakeholders, including information both about the CBF and the many individual legal aid organizations serving the community. The CBF also includes sample language, fact sheets, and other information on its website, and highlights the many successful court-based advice desks and pro bono projects made possible by these awards. These efforts have collectively generated millions of dollars for the CBF and a number of individual legal aid organizations in recent years.
2. Developing Your Cy Pres Effort—The Basics
Your organization’s role in the cy pres effort will depend on how the overall campaign is structured in your community or state. What is listed here are the basics, which need to be done by somebody—either each individual legal aid program and/or a coordinating entity as described above. This part of cy pres resource development really has not changed in recent years, and there are plenty of materials available to help you get started if you are new to cy pres.
Have relevant information readily available: Every legal aid organization should include cy pres and residual fund awards (using both terms) as one of the ways to support their organization. That option should appear on the organization’s website, with a brief description of the organization and contact information in case someone interested in directing an award has a question. It should also appear in printed brochures and other development materials.
Talk with your organization’s staff, board, and other key volunteers: Provide them with information about cy pres awards. Encourage them to be aware of opportunities for cy pres awards for legal aid.
Develop a cy pres committee: If there is not already a coordinating entity in your area, you should consider setting up a cy pres committee and developing a strategy. Your committee should include your organization’s board members and other volunteers who are familiar with this area of law and/or have strong relationships with attorneys who do class action litigation and judges who hear these cases—volunteers who can have personal conversations with this relatively small number of attorneys and judges who are involved in class action litigation.
Develop and implement a cy pres strategy: The MIE library contains extensive resources on cy pres that include sample messages, materials, and manuals. The ABA Resource Center’s Fundraising Manual includes a chapter on cy pres. This is one area where there are great models to draw upon, and no need to reinvent the wheel!
Don’t forget fundamentals of development: A cy pres campaign is basically about resource development, and in many ways is the same as other private fundraising that is being done by your organization:
- Remember the interests of the parties in avoiding potential controversy in the cy pres context. As noted above, legal aid can and should be pitched to the parties as a great solution.
- See the players as individuals, and treat this as you would other personal, one-to-one fundraising efforts.
- Stress initiatives that further the interests of those involved in the case (i.e., plaintiff and defense counsel in the case, one or more corporate defendants, and the court), keeping in mind that the great majority of these awards are distributed as part of a settlement. Examples include projects of your organization (or your grantee organizations) that directly assist the courts, such as court-based pro bono projects or pro se assistance projects, or particular services your organization (or your grantee organizations) provide(s) that will be attractive to the parties.
- If you are contacted about a potential cy pres award, get back with any information requested as quickly as possible. Have template information and materials prepared as part of your strategy, so that with minor adjustments based on the case you can respond to the attorneys or judge immediately.
- Thank those involved and acknowledge them in your recognition efforts (after confirming they want to be recognized).
3. IOLTA Program or Bar Foundation as a Partner
Even if you are in a state or metro area without a coordinated campaign, there will be times where an award to either the IOLTA program or bar foundation in your jurisdiction will be a preferable solution and it will be important to have such an organization as a partner. Examples include where the defendant or the court is uncomfortable with awarding cy pres funds to an organization that litigates in that court, or where one of the parties or judge is affiliated with that organization. This only occasionally becomes an issue, but when it does, a bar foundation or IOLTA program that does not litigate and has an objective grants process in place for distribution of funds can allay those concerns and ensure that an award will still advance access to justice.
There are many things that counsel will disagree on in any class action case, but this is an area where counsel on all sides can agree that the solution works for everyone involved: the class, the defendant, and the courts. In addition to being an important source of funding for the cause, directing cy pres awards to legal aid or ATJ programs can be a great solution for the parties and the court so long as geographic and other key considerations are properly addressed.
The materials in the MIE library and the chapter on cy pres in the ABA Fundraising Manual can serve as resources for everyone, whether you are just getting started or are fine-tuning an already existing campaign. As we’ve noted throughout this article, we’re all in this together, and it’s absolutely key that we all have good, coordinated education and outreach campaigns that stick to the key messages highlighted in this article.